Posts Tagged "fraud"

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Cautionary Tale of Defrauding the Elderly

Two Morgan Stanley investment advisers agreed last week to plead guilty to stealing nearly $500,000 in a set of schemes that took particular aim at their elderly or retired clients, the U.S. Department of Justice charged. One client is in his mid-80s.

Multiple allegations detailed in the federal complaint demonstrate the creative ways that trusting older individuals might be deceived. For example, the Justice Department (DOJ) indicated that college tuition may have been the auspice or motivation for adviser and broker James S. Polese’s alleged fraud to obtain $320,000 from the client in his 80s – labeled Client B in the complaint.

The allegations included that Polese, age 51, knew a $50,000 loan from Client B for his children’s college expenses was prohibited by Morgan Stanley and was “a conflict of interest between the client and his adviser,” said the complaint, which was filed last week in U.S. District Court in Boston.

Polese and Cornelius Peterson, who both live in the Boston metropolitan area, also worked together to divert money from Client A and also a Client B to a failed wind farm investment without their knowledge, the complaint said. A third client allegedly paid inflated fees.

The brazen allegations in this case come amid reports that financial fraud against the elderly is on the rise. Retired people with nest eggs can be enticing targets for scam artists, and the elderly are “likely financially vulnerable” if they are experiencing cognitive decline, one study said. Further, a trusting senior might have more difficulty detecting financial deceptions that involve complex transactions. (Little detail about the clients’ personal situations was disclosed in the court documents.)

Morgan Stanley said that it fired Polese and Peterson in June 2017 immediately after uncovering the fraudulent activities and “referred the misconduct to regulatory and law enforcement agencies.” The two are registered brokers, and the Securities and Exchange Commission was involved in the investigation. The brokers agreed to plead guilty, said a statement from the U.S. Attorney in Massachusetts. A plea hearing is scheduled for February 15.

Client A and Client B were involved in the wind farm investment, the complaint said: Client A lost $100,000 after Peterson made “false statements” to his employer “when he signed a form stating that Client A had verbally authorized the $100,000 [wind farm] investment.” Client B, a businessman, was unaware that his funds were being used to support the wind farm, in the form of a loan account that could be used as a collateral backstop to the project, according to the charges. Although the funds were never used, Client B’s money was nevertheless put at risk, DOJ said, and he paid $12,000 in fees associated with the transaction.

Boston attorney Carol Starkey said her client, Peterson, age 28, was a “minor participant” and noted that Polese, who is 23 years his senior, was Peterson’s supervisor. Polese’s attorney did not respond to requests for a comment. …Learn More

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Fraud Alert: Nursing Home Residents

An estimated 5 million older Americans are victimized by financial and related abuse every year, and people living in nursing homes and assisted living facilities can be especially vulnerable.

The federal Consumer Financial Protection Bureau (CFPB) says identifying financial exploitation is complicated by the fact that those perpetrating the fraud are often individuals the senior believes he or she can trust. Often, they are relatives or friends managing the financial affairs of a senior living in a care facility. …Learn More

Overconfidence Linked to Senior Fraud

The seniors who are most confident of their knowledge about money and investments are also the most likely to fall victim to fraud.

That conclusion, by Chicago researchers at DePaul University and the Rush University Medical Center, is among the first to explain the underlying reason for an alarming trend being detected by law enforcement and financial experts: a rise in fraud committed against an enormous and rapidly aging baby boom generation.

Fraud against the elderly can arise from “that combination of not knowing but thinking you know,” Keith Gamble, an assistant finance professor in DePaul’s Driehaus College of Business, said in an interview in which he explained his new study. “That’s what we call overconfidence,” which he and his co-authors determined was “a risk factor for being victimized by fraud.”

The U.S. incidence of fraud has exploded in recent years. Complaints of financial fraud compiled by the Federal Trade Commission surged more than 60 percent in just three years, to 1.5 million last year.

There is growing concern nationwide that boomers, due to what can be a dangerous combination of cognitive decline and having some money socked away for retirement, are extremely vulnerable to con men peddling financial products that make big promises and deliver nothing – or, worse, rob retirees of money they need to live comfortably or even survive.

Declining cognition is associated with lower financial literacy – that’s nothing new. The concern is that seniors do not recognize the problem, Gamble said. “They are actually more confident in their financial decision-making capabilities. The problem is they don’t have the decision-making ability they once had.”

The Chicago researchers focused on seniors who have not acquired actual dementia or Alzheimer’s disease. Rather, they examined whether fraud could be linked to the cognitive decline that is a natural part of aging. …Learn More